Tag Archives: Austrian Business Cycle Theory

(This article is the third in a series on bitcoin. Read parts 1 and 2 here and here.)

With bitcoin gaining mainstream attention the coming attack on its users is inevitable. In this short piece I will explain how it is likely to unfold and how you can survive it.

First, a little background:

In 1996 E-gold was one of the early entrants to the market with a private, global e-currency. They achieved stellar growth and widespread attention – much like bitcoin today. Accolades came from freedom-lovers everywhere. They were the “Great Gold Hope” that would free the people by freeing the money. Privacy-enthusiasts, libertarians, gold-bugs, autarchists, anarchists, voluntaryists, drug-dealers, and even unsavory types flocked to it with praise and adoration.

Of course, the monopolists of the monetary system didn’t take lightly to this threat to their very existence. They came after the independent exchangers and e-gold with their full force and fury – eventually succeeding in convicting the key players for “conspiracy to operate an unlicensed money-transmitting business” and “conspiracy to engage in money laundering”. E-gold was fairly easy to take down because their operations and data-center were centralized and readily accessible.

Many folks who are now currently acting as currency exchangers for bitcoin will be the first to come under attack. Many will get hurt and possibly even imprisoned but, because of its decentralized nature, bitcoin will survive where e-gold did not.

If any of the large exchangers like mtgox.com are operating out of the US then it won’t be long before they are raided and shut down. Individual exchangers will be targeted as well – just to make an example and to scare others out of the community. This will create a giant “wet blanket” on the current enthusiasm for bitcoin and I expect the currency to take a major drop in exchange value when this happens. Not to fear though. Bitcoin will survive due to its decentralized “peer to peer” nature and it will continue to operate as an “alter-cash” resuming its growth albeit at a slower rate during the immediate aftermath.

To protect yourself I recommend the following:

You probably have a little more time before the attacks come (maybe a couple of months?) to acquire bitcoin with cash – and there are profits in speculation to be made until then but, when the raids come, expect a sharp correction before exchange values move on to new highs over a longer period of time. What you do not want to do is be involved as an “exchange service” conducting exchanges in and out of national currencies and you definitely do not want to have your money sitting in the exchanger’s account when they are raided and shut down.

Remember, e-gold was shut down for “conspiracy to operate an unlicensed money transmitting business”. Do not store any money in online accounts like mybitcoin.com in case they get taken down along with the exchangers. Keep all of your bitcoins on your computer with multiple, encrypted back-ups both on the cloud and on an external thumb drive.

The safest way to acquire bitcoin is to let people know that you will accept it as payment for your products and services. Do not ever exchange it for national currencies. The point that people miss here is that national currencies are the very problem that freedom-lovers are trying to get away from. Instead, use bitcoin to trade with merchants and individuals who accept it as payment. Offer it as payment to those who are unaware of it and explain the benefits to them. This will help develop the market and create a solid economy outside of national currencies. After the initial attack, bitcoin will likely be one of the most powerful and revolutionary tools to bring about more freedom and liberty to humankind.

The Daily Bell is pleased to present an exclusive interview with Dr. Hans-Hermann Hoppe (left).

Introduction: Dr. Hans-Hermann Hoppe, born in 1949 in Peine, West Germany, studied philosophy, sociology, economics, history and statistics at the University of the Saarland, in Saarbruecken, the Johann Wolfgang Goethe University, in Frankfurt am Main, and at the University of Michigan, in Ann Arbor. He received his doctorate (Philosophy, 1974, under Juergen Habermas) and his “Habilitation” degree (Foundations of Sociology and Economics, 1981) both from the Goethe University in Frankfurt.

In 1985 Hoppe moved to New York City to work with Murray N. Rothbard (1926-1995), the most prominent American student of the Austrian economist Ludwig von Mises (1881-1973). In 1986 Hoppe followed Rothbard to the University of Nevada, Las Vegas, where he served as Professor of Economics until his retirement in 2008. After Rothbard’s death, Hoppe also served for many years as editor of the Quarterly Journal of Austrian Economics and of the interdisciplinary Journal for Libertarian Studies. Hoppe is a Distinguished Fellow of the Ludwig von Mises Institute, in Auburn, Alabama, and founder and president of the Property and Freedom Society. He currently lives with his wife Dr. Guelcin Imre, a fellow economist, in Istanbul, Turkey.

Hoppe is the author of eight books – the best known of which is Democracy: The God That Failed – and more than 150 articles in books, scholarly journals and magazines of opinion. As an internationally prominent Austrian School economist and libertarian philosopher, he has lectured all over the world and his writings have been translated into more than twenty languages.

In 2006 Hoppe was awarded the Gary S. Schlarbaum Prize for Lifetime Achievement in the Cause of Liberty, and in 2009 he received the Franz Cuhel Memorial Prize from the University of Economics in Prague. At the occasion of his 60th birthday, in 2009, a Festschrift was published in his honor: Joerg Guido Huelsmann & Stephan Kinsella (eds.), “Property, Freedom and Society. Essays in Honor of Hans-Hermann Hoppe.” Hoppe’s personal website is http://www.HansHoppe.com. There the bulk of his scholarly and popular writings as well as many public lecture recordings are electronically available.

Daily Bell: Please answer these questions as our readers were not already aware of your fine work and considered opinions. Let’s jump right in. Why is democracy “The God that failed?”

Dr. Hans-Hermann Hoppe: The traditional, pre-modern state-form is that of a (absolute) monarchy. The democratic movement was directed against kings and the classes of hereditary nobles. Monarchy was criticized as being incompatible with the basic principle of the “equality before the law.” It rested on privilege and was unfair and exploitative. Democracy was supposed to be the way out. In opening participation and entry into state-government to everyone on equal terms, so the advocates of democracy claimed, equality before the law would become reality and true freedom would reign. But this is all a big error.

True, under democracy everyone can become king, so to speak, not only a privileged circle of people. Thus, in a democracy no personal privileges exist. However, functional privileges and privileged functions exist. Public officials, if they act in an official capacity, are governed and protected by “public law” and thereby occupy a privileged position vis-à-vis persons acting under the mere authority of “private law.” In particular, public officials are permitted to finance or subsidize their own activities through taxes. That is, they are permitted to engage in, and live off, what in private dealings between private law subjects is prohibited and considered “theft” and “stolen loot.” Thus, privilege and legal discrimination – and the distinction between rulers and subjects – will not disappear under democracy.

Even worse: Under monarchy, the distinction between rulers and ruled is clear. I know, for instance, that I will never become king, and because of that I will tend to resist the king’s attempts to raise taxes. Under democracy, the distinction between rulers and ruled becomes blurred. The illusion can arise “that we all rule ourselves,” and the resistance against increased taxation is accordingly diminished. I might end up on the receiving end: as a tax-recipient rather than a tax-payer, and thus view taxation more favorably.

And moreover: As a hereditary monopolist, a king regards the territory and the people under his rule as his personal property and engages in the monopolistic exploitation of this “property.” Under democracy, monopoly and monopolistic exploitation do not disappear. Rather, what happens is this: instead of a king and a nobility who regard the country as their private property, a temporary and interchangeable caretaker is put in monopolistic charge of the country. The caretaker does not own the country, but as long as he is in office he is permitted to use it to his and his protégés’ advantage. He owns its current use – usufruct – but not its capital stock. This does not eliminate exploitation. To the contrary, it makes exploitation less calculating and carried out with little or no regard to the capital stock. Exploitation becomes shortsighted and capital consumption will be systematically promoted.

Daily Bell: If democracy has failed what would you put in its place? What is the ideal society? Anarcho-capitalism?

Dr. Hans-Hermann Hoppe: I prefer the term “private law society.” In a private law society every individual and institution is subject to one and the same set of laws. No public law granting privileges to specific persons or functions exists in this society. There is only private law (and private property), equally applicable to each and everyone. No one is permitted to acquire property by means other than through original appropriation of previously un-owned things, through production, or through voluntary exchange, and no one possesses a privilege to tax and expropriate. Moreover, no one is permitted to prohibit anyone else from using his property in order to enter any line of production he wishes and compete against whomever he pleases.

Daily Bell: How would law and order be provided in this society? How would your ideal justice system work?

Dr. Hans-Hermann Hoppe: In a private law society the production of law and order – of security – would be undertaken by freely financed individuals and agencies competing for a voluntarily paying (or not-paying) clientele – just as the production of all other goods and services. How this system would work can be best understood in contrast to the workings of the present, all-too-familiar statist system. If one wanted to summarize in one word the decisive difference – and advantage – of a competitive security industry as compared to the current statist practice, it would be: contract.

The state operates in a legal vacuum. There exists no contract between the state and its citizens. It is not contractually fixed, what is actually owned by whom, and what, accordingly, is to be protected. It is not fixed, what service the state is to provide, what is to happen if the state fails in its duty, nor what the price is that the “customer” of such “service” must pay. Rather, the state unilaterally fixes the rules of the game and can change them, per legislation, during the game. Obviously, such behavior is inconceivable for freely financed security providers. Just imagine a security provider, whether police, insurer or arbitrator, whose offer consisted in something like this: I will not contractually guarantee you anything. I will not tell you what I oblige myself to do if, according to your opinion, I do not fulfill my service to you – but in any case, I reserve the right to unilaterally determine the price that you must pay me for such undefined service. Any such security provider would immediately disappear from the market due to a complete lack of customers.

Each private, freely financed security producer must instead offer its prospective clients a contract. And these contracts must, in order to appear acceptable to voluntarily paying consumers, contain clear property descriptions as well as clearly defined mutual services and obligations. Each party to a contract, for the duration or until the fulfillment of the contract, would be bound by its terms and conditions; and every change of terms or conditions would require the unanimous consent of all parties concerned.

Specifically, in order to appear acceptable to security buyers, these contracts must contain provisions about what will be done in the case of a conflict or dispute between the protector or insurer and his own protected or insured clients as well as in the case of a conflict between different protectors or insurers and their respective clients. And in this regard only one mutually agreeable solution exists: in these cases the conflicting parties contractually agree to arbitration by a mutually trusted but independent thirdparty. And as for this third party: it, too, is freely financed and stands in competition with other arbitrators or arbitration agencies. Its clients, i.e., the insurers and the insured, expect of it, that it come up with a verdict that is recognized as fair and just by all sides. Only arbitrators capable of forming such judgments will succeed in the arbitration market. Arbitrators incapable of this and viewed as biased or partial will disappear from the market.

Daily Bell: Are you denying, then, that we need the state to defend us?

Dr. Hans-Hermann Hoppe: Indeed. The state does not defend us; rather, the state aggresses against us and it uses our confiscated property to defend itself. The standard definition of the state is this: the state is an agency characterized by two unique, logically connected features. First, the state is an agency that exercises a territorial monopoly of ultimate decision-making. That is, the state is the ultimate arbiter and judge in every case of conflict, including conflicts involving itself and its agents. There is no appeal above and beyond the state. Second, the state is an agency that exercises a territorial monopoly of taxation. That is, it is an agency that can unilaterally fix the price that its subjects must pay for the state’s service as ultimate judge. Based on this institutional set-up you can safely predict the consequences. First, instead of preventing and resolving conflict, a monopolist of ultimate decision-making will cause and provoke conflict in order to settle it to its own advantage. That is, the state does not recognize and protect existing law, but it perverts law through legislation. Contradiction number one: the state is a law-breaking law protector. Second, instead of defending and protecting anyone or anything, a monopolist of taxation will invariably strive to maximize his expenditures on protection and at the same time minimize the actual production of protection. The more money the state can spend and the less it must work for this money, the better off it is. Contradiction number two: the state is an expropriating property protector.

Daily Bell: Are there any good laws and regulations?

Dr. Hans-Hermann Hoppe: Yes. There are a few, simple good laws that almost everyone intuitively recognizes and acknowledges and that can also be demonstrated to be “true” and “good” laws. First: If there were no interpersonal conflicts and we all lived in perfect harmony there would be no need for any law or norm. It is the purpose of laws or norms to help avoid otherwise unavoidable conflict. Only laws that achieve this can be called good laws. A law that generates conflict rather than help avoid it is contrary to the purpose of laws, i.e., bad, dysfunctional or perverted law.

Second: Conflicts are possible only if and insofar as goods are scarce. People clash, because they want to use one and the same good in different, incompatible ways. Either I win and get my way or you win and get your way. We cannot both be “winners.” In the case of scarce goods, then, we need rules or laws helping us decide between rival, conflicting claims. In contrast, goods that are “free,” i.e., goods that exist in superabundance, that are inexhaustible or infinitely re-producible, are not and cannot be a source of conflict. Whenever I use a non-scarce good it does not in the slightest diminish the supply of this good available to you. I can do with it what I want and you can do with it what you want at the same time. There is no loser. We are both winners; and hence, as far as non-scarce goods are concerned, there is never any need for laws.

Third: All conflict concerning scarce goods, then, can be avoided if only every good is privately owned, i.e., exclusively controlled by one specified individual(s) rather than another, and it is always clear which thing is owned, and by whom, and which is not. And in order to avoid all possible conflict from the beginning of mankind on, it is only necessary to have a rule regulating the first, original appropriation of previously un-owned, nature-given goods as private property. In sum then, there are essentially three “good laws” that assure conflict-free interaction or “eternal peace:” a) he who first appropriates something previously on-owned is its exclusive owner (as the first appropriator he cannot have come into conflict with anyone else as everyone else appeared on the scene only later); b) he who produces something with his body and homesteaded goods is owner of his product, provided he does not thereby damage the physical integrity of others’ property; and c) he who acquires something from a previous or earlier owner by means of voluntary exchange, i.e., an exchange that is deemed mutually beneficial, is its owner.

Daily Bell: How, then, does one define freedom? As the absence of state coercion?

Dr. Hans-Hermann Hoppe: A society is free, if every person is recognized as the exclusive owner of his own (scarce) physical body, if everyone is free to appropriate or “homestead” previously un-owned things as private property, if everyone is free to use his body and his homesteaded goods to produce whatever he wants to produce (without thereby damaging the physical integrity of other peoples’ property), and if everyone is free to contract with others regarding their respective properties in any way deemed mutually beneficial. Any interference with this constitutes an act of aggression, and a society is un-free to the extent of such aggressions.

Daily Bell: Where do you stand on copyright? Do you believe that intellectual property doesn’t exist as Kinsella has proposed?

Dr. Hans-Hermann Hoppe: I agree with my friend Kinsella, that the idea of intellectual property rights is not just wrong and confused but dangerous. And I have already touched upon why this is so. Ideas – recipes, formulas, statements, arguments, algorithms, theorems, melodies, patterns, rhythms, images, etc. – are certainly goods (insofar as they are good, not bad, recipes, etc.), but they are not scarce goods. Once thought and expressed, they are free, inexhaustible goods. I whistle a melody or write down a poem, you hear the melody or read the poem and reproduce or copy it. In doing so you have not taken anything away from me. I can whistle and write as before. In fact, the entire world can copy me and yet nothing is taken from me. (If I didn’t want anyone to copy my ideas I only have to keep them to myself and never express them.)

Now imagine I had been granted a property right in my melody or poem such that I could prohibit you from copying it or demanding a royalty from you if you do. First: Doesn’t that imply, absurdly, that I, in turn, must pay royalties to the person (or his heirs) who invented whistling and writing, and further on to those, who invented sound-making and language, and so on? Second: In preventing you from or making you pay for whistling my melody or reciting my poem, I am actually made a (partial) owner of you: of your physical body, your vocal chords, your paper, your pencil, etc. because you did not use anything but your own property when you copied me. If you can no longer copy me, then, this means that I, the intellectual property owner, have expropriated you and your “real” property. Which shows: intellectual property rights and real property rights are incompatible, and the promotion of intellectual property must be seen as a most dangerous attack on the idea of “real” property (in scarce goods).

Daily Bell: We have suggested that if people want to enforce generational copyright that they do so on their own, taking on the expense and attempting through various means to confront copyright violators with their own resources. This would put the onus of enforcement on the pocket book of the individual. Is this a viable solution – to let the market itself decide these issues?

Dr. Hans-Hermann Hoppe: That would go a long way in the right direction. Better still: more and more courts in more and more countries, especially countries outside the orbit of the US dominated Western government cartel, would make it clear that they don’t hear cases of copyright and patent violations any longer and regard such complaints as a ruse of big Western government-connected firms, such as pharmaceutical companies, for instance, to enrich themselves at the expense of other people.

Daily Bell: What do you think of Ragnar Redbeard’s Might Is Right?

Dr. Hans-Hermann Hoppe: You can give two very different interpretations to this statement. I see no difficulty with the first one. It is: I know the difference between “might” and “right” and, as a matter of empirical fact, might is in fact frequently right. Most if not all of “public law,” for instance, is might masquerading as right. The second interpretation is: I don’t know the difference between “might” and “right,” because there is no difference. Might is right and right is might. This interpretation is self-contradictory. Because if you wanted to defend this statement as a true statement in an argument with someone else you are in fact recognizing your opponent’s property right in his own body. You do not aggress against him in order to bring him to the correct insight. You allow him to come to the correct insight on his own. That is, you admit, at least implicitly, that you do know the difference between right and wrong. Otherwise there would be no purpose in arguing. The same, incidentally, is true for Hobbes’ famous dictum that one man is another man’s wolf. In claiming this statement to be true, you actually prove it to be false.

Daily Bell: It has been suggested that the only way to reorganize society is via a return to the clans and tribes that characterized homo-sapiens communities for tens of thousands of years? Is it possible that as part of this devolution, clan or tribal justice could be re-emphasized?

Dr. Hans-Hermann Hoppe: I don’t think that we, in the Western world, can go back to clans and tribes. The modern, democratic state has destroyed clans and tribes and their hierarchical structures, because they stood in the way of the state’s drive toward absolute power. With clans and tribes gone, we must try it with the model of a private law society that I have described. But wherever traditional, hierarchical clan and tribe structures still exist, they should be supported and attempts to “modernize” “archaic” justice systems along Western lines should be viewed with utmost suspicion.

Daily Bell: You have also written extensively on money and monetary affairs. Is a gold standard necessary for a free society?

Dr. Hans-Hermann Hoppe: in a free society, the market would produce money, as all other goods and services. There would be no such thing as money in a world that was perfectly certain and predictable. But in a world with unpredictable contingencies people come to value goods also on account of their marketability or salability, i.e., as media of exchange. And since a more easily and widely salable good is preferable to a less easily and widely salable good as a medium of exchange, there is an inevitable tendency in the market for a single commodity to finally emerge that differs from all others in being the most easily and widely salable commodity of all. This commodity is called money. As the most easily salable good of all it provides its owner with the best humanly possible protection against uncertainty in that it can be employed for the instant satisfaction of the widest range of possible needs. Economic theory has nothing to say as to what commodity will acquire the status of money. Historically, it happened to be gold. But if the physical make-up of our world would have been different or is to become different from what it is now, some other commodity would have become or might become money. The market will decide. In any case, there is no need for government to get involved in any of this. The market has provided and will provide some money-commodity, and the production of that commodity, whatever it is, is subject to the same forces of supply and demand as the production of everything else.

Daily Bell: How about the free-banking paradigm? Is private fractional banking ever to be tolerated or is it a crime? Who is to put people in jail for private fractional banking?

Dr. Hans-Hermann Hoppe: Assume gold is money. In a free society you have free competition in gold-mining, you have free competition in gold-minting, and you have freely competing banks. The banks offer various financial services: of money safekeeping, clearing services, and the service of mediating between savers and borrower-investors. Each bank issues its own brand of “notes” or “certificates” documenting the various transactions and resulting contractual relations between bank and client. These bank-notes are freely tradable. So far so good. Controversial among free bankers is only the status of fractional reserve deposit banking and bank notes. Let’s say A deposits 10 ounces of gold with a bank and receives a note (a money substitute) redeemable at par on demand. Based on A’s deposit, then, the bank makes a loan to C of 9 ounces of gold and issues a note to this effect, again redeemable at par on demand.

Should this be permitted? I don’t think so. For there are now two people, A and C, who are the exclusive owner of one and the same quantity of money. A logical impossibility. Or put differently, there are only 10 ounces of gold, but A is given title to 10 ounces and C holds title to 9 ounces. That is, there are more property titles than there is property. Obviously this constitutes fraud, and in all areas except money, courts have also considered such a practice fraud and punished the offenders. On the other hand, there is no problem if the bank tells A that it will pay interest on his deposit, invest it, for instance, in a money market mutual fund made up of highly liquid short-term financial papers, and make its best efforts to redeem A’s shares in that investment fund on demand in a fixed quantity of money. Such shares may well be very popular and many people may put their money into them instead of into regular deposit accounts. But as shares of investment funds they would never function as money. They would never be the most easily and widely saleable commodity of all.

Daily Bell: Where do you stand on the current central banking paradigm? Is central banking as it is currently constituted the central disaster of our time?

Dr. Hans-Hermann Hoppe: Central banks are certainly one of the greatest mischief-makers of our time. They, and in particular the FED, have been responsible for destroying the gold standard, which has always been an obstacle to inflationary policies, and replacing it, since 1971, with a pure paper money standard (fiat money). Since then, central banks can create money virtually out of thin air. More paper money cannot make a society richer, of course, – it is just more printed-paper. Otherwise, why is it that there are still poor countries and poor people around? But more money makes its monopolistic producer (the central bank) and its earliest recipients (the government and big, government-connected banks and their major clients) richer at the expense of making the money’s late and latest receivers poorer.

Thanks to the central bank’s unlimited money printing power, governments can run ever higher budget deficits and pile up ever more debt to finance otherwise impossible wars, hot and cold, abroad and at home, and engage in an endless stream of otherwise unthinkable boondoggles and adventures. Thanks to the central bank, most “monetary experts” and “leading macro-economists” can, by putting them on the payroll, be turned into government propagandists “explaining,” like alchemists, how stones (paper) can be turned into bread (wealth). Thanks to the central bank, interest rates can be artificially lowered all the way down to zero, channeling credit into less and least credit-worthy projects and hands (and crowding out worthy projects and hands), and causing ever greater investment bubble-booms, followed by ever more spectacular busts. And thanks to the central bank, we are confronted with a dramatically increasing threat of an impending hyperinflation when the chicken finally come home to roost and the piper must be paid.

Daily Bell: We have often pointed out that the Seven Hills of Rome were initially independent societies just like the Italian city-states during the Renaissance and the 13 colonies of the US Republic. It seems great empires start as individual communities where people can leave one community if they are oppressed and go nearby to start afresh. What is the driving force behind this process of centralization? What are the building blocks of Empire?

Dr. Hans-Hermann Hoppe: All states must begin small. That makes it easy for people to run away. Yet states are by nature aggressive, as I have already explained. They can externalize the cost of aggression onto others, i.e., hapless tax-payers. They don’t like to see productive people run away and try to capture them by expanding their territory. The more productive people the state controls, the better off it will be. In this expansionist desire, they run into opposition by other states. There can be only one monopolist of ultimate jurisdiction and taxation in any given territory. That is, the competition between different states is eliminative. Either A wins and controls a territory, or B. Who wins? At least in the long run, that state will win – and take over another’s territory or establish hegemony over it and force it to pay tribute – that can parasitically draw on the comparatively more productive economy. That is, other things being the same, internally more “liberal” states (in the classic European sense of “liberal”) will tend to win over less “liberal,” i.e., illiberal or oppressive states.

Looking only at modern history, we can so explain first the rise of liberal Great Britain to the rank of the foremost world Empire and then, subsequently, that of the liberal US. And we can understand a seeming paradox: why it is, that internally liberal imperial powers like the US tend to be more aggressive and belligerent in their foreign policy than internally oppressive powers, such as the former Soviet Union. The liberal US Empire was sure to win with its foreign wars and military adventures, while the oppressive Soviet Union was afraid that it might lose.

But Empire building also bears the seeds of its own destruction. The closer a state comes to the ultimate goal of world domination and one-world government, the less reason is there to maintain its internal liberalism and do instead what all states are inclined to do anyway, i.e., to crack down and increase their exploitation of whatever productive people are still left. Consequently, with no additional tributaries available and domestic productivity stagnating or falling, the Empire’s internal policies of bread and circuses can no longer be maintained. Economic crisis hits, and an impending economic meltdown will stimulate decentralizing tendencies, separatist and secessionist movements, and lead to the break-up of Empire. We have seen this happen with Great Britain, and we are seeing it now, with the US and its Empire apparently on its last leg.

There is also an important monetary side to this process. The dominant Empire typically provides the leading international reserve currency, first Britain with the pound sterling and then the US with the dollar. With the dollar used as reserve currency by foreign central banks, the US can run a permanent “deficit without tears.” That is, the US must not pay for its steady excesses of imports over exports, as it is normal between “equal” partners, in having to ship increasingly more exports abroad (exports paying for imports). Rather: Instead of using their export earnings to buy American goods for domestic consumption, foreign governments and their central banks, as a sign of their vassal status vis-à-vis a dominant US, use their paper dollar reserves to buy up US government bonds to help Americans to continue consuming beyond their means.

I do not know enough about China to understand why it is using its huge dollar reserves to buy up US government bonds. After all, China is not supposed to be a part of the US Empire. Maybe its rulers have read too many American economics textbooks and now believe in alchemy, too. But if only China would dump its US treasuries and accumulate gold reserves instead, that would be the end of the US Empire and the dollar as we know it.

Daily Bell: Is it possible that a shadow of impossibly wealthy families located in the City of London is partially responsible for all this? Do these families and their enablers seek world government by elites? Is it a conspiracy? Do you see the world in these terms: as a struggle between the centralizing impulses of elites and the more democratic impulses of the rest of society?

Dr. Hans-Hermann Hoppe: I’m not sure if conspiracy is still the right word, because in the meantime, thanks to people such as Carroll Quigley, for instance, much is known about what is going on. In any case, it is certainly true that there are such impossibly rich families, sitting in London, New York City, Tel Aviv and elsewhere, who have recognized the immense potential for personal enrichment in the process of State- and Empire-building. The heads of big banking houses played a key role in the founding of the FED, because they realized that central banking would allow their own banks to inflate and expand credit on top of money and credit created by the central bank, and that a “lender of last resort” was instrumental in allowing them to reap private profits as long as things would go well and to socialize costs if they wouldn’t.

They realized that the classical gold standard stood as a natural impediment to inflation and credit expansion, and so they helped set up first a phony gold standard (the gold exchange standard) and then, after 1971, a pure fiat money regime. They realized that a system of freely fluctuating national fiat currencies was still imperfect as far as inflationist desires are concerned, in that the supremacy of the dollar could be threatened by other, competing currencies such as a strong German Mark, for instance; and in order to reduce and weaken this competition they supported “monetary integration” schemes such as the creation of a European Central Bank (ECB) and the Euro.

And they realized that their ultimate dream of unlimited counterfeiting power would come true, if only they succeeded in creating a US dominated world central bank issuing a world paper currency such as the bancor or the phoenix; and so they helped set up and finance a multitude of organizations such as the Council on Foreign Relations, the Trilateral Commission, the Bilderberg Group, etc., that promote this goal. As well, leading industrialists recognized the tremendous profits to be made from state-granted monopolies, from state-subsidies, and from exclusive cost-plus contracts in freeing or shielding them from competition, and so they, too, have allied themselves to and “infiltrated” the state.

There are “accidents” in history, and there are carefully planned actions that bring about consequences which are unintended and unanticipated. But history is not just a sequence of accidents and surprises. Most of it is designed and intended. Not by common folks, of course, but by the power elites in control of the state apparatus. If one wants to prevent history from running its present, foreseeable course to unprecedented economic disaster, then, it is indeed imperative to arouse public indignation by exposing, relentlessly, the evil motives and machinations of these power elites, not just of those working within the state apparatus, but in particular also of those staying outside, behind the scenes and pulling the strings.

Daily Bell: It has been our contention that just as the Gutenberg press blew up existing social structures in its day, so the Internet is doing that today. We believe the Internet may be ushering in a new Renaissance after the Dark Age of the 20th century. Agree? Disagree?

Dr. Hans-Hermann Hoppe: It is certainly true that both inventions revolutionized society and greatly improved our lives. It is difficult to imagine what it would be to go back to the pre-internet age or the pre-Gutenberg era. I am skeptical, however, if technological revolutions in and of themselves also bring about moral progress and an advance toward greater freedom. I am more inclined to think that technology and technological advances are “neutral” in this regard. The Internet can be used to unearth and spread the truth as much as to spread lies and confusion. It has given us unheard of possibilities to evade and undermine our enemy the state, but it has also given the state unheard of possibilities of spying on us and ruining us. We are richer today, with the Internet, than we were, let’s say, in 1900, without it (and we are richer not because of the state but in spite of it). But I would emphatically deny that we are freer today than we were in 1900. Quite to the contrary.

Daily Bell: Any final thoughts? Can you tell us what you are working on now? Any books or websites you would like to recommend?

Dr. Hans-Hermann Hoppe: I once deviated from my principle not to speak about my work until it was done. I have regretted this deviation. It was a mistake that I won’t repeat. As for books, I recommend above all reading the major works of my two masters, Ludwig von Mises and Murray Rothbard, not just once, but repeatedly from time to time. Their work is still unsurpassed and will remain so for a long time to come. As for websites, I go most regularly to mises.org and to lewrockwell.com. As for other sites: I have been called an extremist, a reactionary, a revisionist, an elitist, a supremacist, a racist, a homophobe, an anti-Semite, a right-winger, a theocrat, a godless cynic, a fascist and, of course, a must for every German, a Nazi. So, it should be expected that I have a foible for politically “incorrect” sites that every “modern,” “decent,” “civilized,” “tolerant,” and “enlightened” man is supposed to ignore and avoid.

Daily Bell: Thank you for your time in answering these questions. It has been a special honor to address them to you in the context of your remarkable work.

I wanted to post some brief comments to let some of the newer readers understand why many of us believe that there is a war being waged upon gold by the Central Banks of the West.

Let me start this off by quoting from none other than former Fed Chairman Alan Greenspan more than 40 years ago:

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard

What the former Fed Chairman was then saying was that absent a gold standard or some device for restraining the unlimited creation of fiat money, there was nothing to impede monetary officials from engaging in such activity to the extent that it would ultimately set in motion a process of inflation, which is really just another name for the erosion of the purchasing power of a nation’s currency by debasing it. Inflation was and is in essence, the transfer of wealth from one class to another.

Today we have the Fed engaging in the very process that Greenspan warned against back then. We also have the BOJ and the ECB effectively doing the same thing to an extent.

Unlike Silver, Gold is the main metal that most analysts and commentators look to when attempting to decipher whether or not inflation is a serious problem. That means the reference point of gold has become a target for Central Banks which want the world to believe that they can create unlimited amounts of funny money with absolutely ZERO impact on inflation levels. In other words, that they can conjure up wealth and produce prosperity with the electronic equivalent of a printing press and produce no serious inflationary impact by so doing.

A rising gold debunks their hubristic assertions to the contrary for it stands as a silent witness testifying against them. This is the reason the yellow metal is despised by so many Central Banks. It mocks their policies and displays their folly for all the world to see. Central Bankers, being the demigods that they are, will tolerate no rivals to their claims of economic omniscience. You see they have actually come to believe that it is their own wisdom and foresight which enables them to see through the fog that hinders and impedes our economic progress and that they are in a unique position to provide the rest of us with lasting prosperity. They attempt to do this by basically providing or withdrawing liquidity as they in their wisdom judge best and by the setting or manipulation of interest rates.

Those of us who believe that it is free market capitalism and the industry and efforts of mankind that produce wealth and prosperity would beg to differ but that is another story altogether. I would add that it is my opinion that the world would be better off without this plague of locusts that actually devour a nation’s wealth but the fact is that they are here.

While they are here gold will attempt to move in such a manner that it either blesses or curses their policies. Now we all would love to have our policies approved by the vote of the market but what about those times in which the market frowns on our course of action and refuses to smile upon it? Why this is but a simple matter – attack the messenger! If one can somehow manage to keep the price of gold under wrap so that it does not move sharply higher then one can attempt to make the claim that inflation is not a serious problem. The comments usually go something like this:

“Well Jerry, we are looking at the gold price and from what we can see, that while it is definitely higher, it is not soaring out of control. The market may be pricing in some gradual inflation but the action in the gold price is telling us that any fears of inflation getting out of control are definitely unwarranted. Besides, we all agree that some inflation is a good thing because the alternative is deflation and no one wants to see that”.

Imagine Fed Chairman Ben Bernanke testifying before Congress saying that the current rise in prices of many goods is only “temporary” and “relatively modest” if the gold price were soaring beyond $1650 and higher! Do you think anyone would take anything that the Chairman said seriously? Copper can soar higher and most will not notice it. Even if it does, it is generally explained as a positive because we are told it is a sign of strong economic growth ahead. Crude oil and energy prices can rocket higher and that can be attributed to geopolitical unrest among oil producing nations. Food can rise sharply and everyone notices that but such things are often explained away by citing weather conditions, supply constraints, etc. but a rising gold price? How does one explain that away?

The only reason that gold has a sustained price rise is because of a lack of confidence in the monetary system. It does not rise sharply because of such things as jewelry demand or industrial demand – it rises when fear, distrust, doubt, suspicion and uncertainty over Central Bank policy reigns. It rises when REAL interest rates are negative and investors understand the insidious process of currency debauchment practiced by these monetary authorities is underway. It thus cries aloud and issues a warning to those who can hear it and what it shouts displeases many Central Bankers because they are among those who while they despise its message, are all too keenly able to hear that message.

Thus the messenger, the prophet, the oracle, must be silenced or at the very least, his message blunted, toned down, marginalized, trivialized by whatever means possible. The mechanism employed to do just this is a subject for another time and place. Suffice it to say for now, without the efforts by the monetary officials of the West to discredit gold, it would be trading considerably higher. Even at that however, the ancient metal of kings refuses to go quietly and docilely into the night. It will yet have the final say.

On March 14, 1883, a German philosopher living in exile in London passed away. When he was buried three days later in a modest grave where his wife had been laid to rest two years earlier, fewer than ten people were present, half of them family members. His closest friend spoke at the grave-site and said, “Soon the world will feel the void left by the passing of this Titan.” But there was, in fact, little reason to think that the deceased man or his long, turgid, and often obscure writings would leave any lasting impression on the world of ideas or on the course of human events.

That man was Karl Marx.

Advocates of liberty often suffer bouts of despair. How can the cause of freedom ever triumph in a world so dominated by interventionist and welfare-statist ideas? Governments often give lip service to the benefits of free markets and the sanctity of personal and civil liberties. In practice, however, those same governments continue to encroach on individual freedom, restrict and regulate the world of commerce and industry, and redistribute the wealth of society to those with political power and influence. The cause of freedom seems to be a lost cause, with merely temporary rear-guard successes against the continuing growth of government.

What friends of freedom need to remember is that trends can change, that they have in the past and will again in the future. If this seems far-fetched, place yourself in the position of a socialist at the time that Marx died in 1883, and imagine that you are an honest and sincere advocate of socialism. As a socialist, you live in a world that is predominately classical liberal and free market, with governments in general only intervening in minimal ways in commercial affairs. Most people—including those in the “working class”—believe that it is not the responsibility of the state to redistribute wealth or nationalize industry and agriculture, and are suspicious of government paternalism.

How could socialism ever be victorious in such a world so fully dominated by the “capitalist” mindset? Even “the workers” don’t understand the evils of capitalism and the benefits of a socialist future! Such a sincere socialist could only hope that Marx was right and that socialism would have to come—someday—due to inescapable “laws of history.”

Yet within 30 years the socialist idea came to dominate the world. By World War I the notion of paternalistic government had captured the minds of intellectuals and was gaining increasing support among the general population. Welfare-statist interventionism was replacing the earlier relatively free-market environment.

The socialist ideal of government planning was put into effect as part of the wartime policies of the belligerent powers beginning in 1914, and also lead to the communist revolution in Russia in 1917, the rise to power of fascism in Italy in 1922, the triumph of National Socialism (Nazism) in Germany in 1933, and the implementation of FDR’s New Deal policies in 1933, as well.

Socialism triumphed during that earlier period of the last decades of the 19th and early decades of the 20th centuries because while socialists advocated collectivism, they practiced a politics of individualism. They understood that “history” would not move in their direction unless they changed popular opinion. And implicitly they understood that this meant changing the minds of millions of individual people.

So they went out and spoke and debated with their friends and neighbors. They contributed to public lectures and the publishing of pamphlets and books. They founded newspapers and magazines, and distributed them to anyone who would be willing to read them. They understood that the world ultimately changes one mind at a time—in spite of their emphasis on “social classes,” group interests, and national conflicts

They overcame the prevailing public opinion, defeated powerful special interests, and never lost sight of their long-term goal of the socialist society to come, which was the motivation and the compass for all their actions.

The Lessons for Freedom

What do friends of freedom have to learn from the successes of our socialist opponents? First, we must fully believe in the moral and practical superiority of freedom and the free market over all forms of collectivism. We must be neither embarrassed nor intimidated by the arguments of the collectivists, interventionists, and welfare statists. Once any compromise is made in the case for freedom, the opponents of liberty will have attained the high ground and will set the terms of the debate.

Freedom advocate, Leonard E. Read, once warned of sinking in a sea of “buts.” I believe in freedom and self-responsibility, “but” we need some minimum government social “safety net.” I believe in the free market, “but” we need some limited regulation for the “public good.” I believe in free trade, “but” we should have some form of protectionism for “essential” industries and jobs. Before you know it, Read warned, the case for freedom has been submerged in an ocean of exceptions.

Each of us, given the constraints on his time, must try to become as informed as possible about the case for freedom. Here, again, Read pointed out the importance of self-education and self-improvement. The more knowledgeable and articulate we each become in explaining the benefits of the free society and the harm from all forms of collectivism, the more we will have the ability to attract people who may want to hear what we have to say.

Another lesson to be learned from the earlier generation of socialists is not to be disheartened by the apparent continuing political climate that surrounds us. We must have confidence in the truth of what we say, to know in our minds and hearts that freedom can and will win in the battle of ideas. We must focus on that point on the horizon that represents the ideal of individual liberty and the free society, regardless of how many twists and turns everyday political currents seem to be following. National, state, and local elections merely reflect prevailing political attitudes and beliefs. Our task is to influence the future and not allow ourselves to be distracted or discouraged by who gets elected today and on what policy platform.

Let us remember that over the last hundred years virtually every form of collectivism has been tried—socialism, communism, fascism, Nazism, interventionism, welfare statism—and each has failed. There are very few today who wax with sincere enthusiasm that government is some great secular god that can solve all of mankind’s problems. Statist policies and attitudes continue to prevail because of institutional and special-interest inertia; they no longer possess the political, philosophical, and ideological fervor that brought them to power in earlier times.

There is only one “ism” left to fill this vacuum in the face of collectivism’s failures. It is classical liberalism, with its conception of the free man in the free society and the free market, grounded in the idea of peaceful association and individual rights. If we keep that before us, we can and will win liberty in our time—for ourselves and our children.

The following article shows how taxation and legislation interfere with the desires of people and how these people must redirect their resources to achieve their desired ends. These diverted resources are resources that cannot be directed to more productive means thus lowering the standards of living for all involved. The concepts “specialization of labor” (also known as “division of labor”) and “comparative advantage” explains how people tend to specialize in their productive endeavors so that they can trade their surplus production with others. For example, a shoe maker can make better shoes than a bread maker and vice versa so they focus on their respective specialties and then trade with each other when they need the others’ products.

In the story below, this woman very well may rather spend her time doing something she is better at instead of growing tobacco but the high cost of buying manufactured cigarettes forces her to become a tobacco grower. This deprives the world of her productive talents in those areas that she is better suited. At the very least, it deprives her of her valuable time that she could have devoted to leisurely activities.

Now in Brooklyn, Homegrown Tobacco: Local, Rebellious and Tax Free

The cigarettes Audrey Silk used to smoke — Parliament Lights — are made at a factory in Richmond, Va. The cigarettes she smokes these days are made and grown in Brooklyn, at her house.

Ms. Silk’s backyard is home to raspberry and rose bushes, geraniums, impatiens and 100 tobacco plants in gardening buckets near her wooden deck. Inside her house, around the corner from Flatbush Avenue, in Marine Park, she has to be careful stepping into her basement — one wrong move could ruin her cigarettes. Dozens of tobacco leaves hang there, drying on wires she has strung across the room, where they turn a crisp light brown as they age above a stack of her old Springsteen records.

She talks about cartons and packs in relation to crops and seeds. Planted in 2009, her first crop— 25 plants of Golden Seal Special Burley tobacco — produced nine cartons of cigarettes. Ms. Silk would have spent more than $1,000 had she bought nine cartons in parts of New York City. Instead, she spent $240, mostly for the trays, the buckets and plant food.

But for Ms. Silk, 46, a retired police officer and the founder of New York City Clash (Citizens Lobbying Against Smoker Harassment), a smokers’ rights group, it is not just about the money. It is about the message. In the state with the highest cigarette taxes in the country, in a city that has become one of the hardest places in America to find a place to smoke, Ms. Silk has gone off the grid, growing, processing and smoking her own tax-free cigarettes from packets of seeds she buys online for about $2. She expects to produce a total of 45 cartons after planting two crops — the first in the summer of 2009, the second last summer — and estimates that she will have saved more than $5,000.

“It’ll make the antismokers apoplectic,” said Ms. Silk. “They’re using the power of taxation to coerce behavior. That’s not what taxation is supposed to be for.”

“The only way we’re going to win now, since you can’t reason with the irrational, which is the City Council or any lawmakers,” Ms. Silk said, “is you have to take the position of giving them the finger.”

Though she has become more vocal about her tobacco, she remains apprehensive. She said that she worried that antismoking advocates and the Bloomberg administration, which pushed to ban smoking in restaurants and bars, would make homegrown tobacco their next target. “We fear that the antismokers are so hysterical that if they start finding that people are doing this, they would craft a law to make it illegal,” Ms. Silk said. “I’m waiting for the black helicopters to start flying over my yard.”

Jim Johnson, the president of Seedman.com, the company based in Mississippi that supplied Ms. Silk with her seeds, was not surprised to learn that the Golden Seal tobacco had done well in the Brooklyn sunshine. He said that tobacco would grow anywhere there were about 100 frost-free nights, and that he even had customers in Alaska. Mr. Johnson said tobacco was “a very tough, resilient plant.”

If there are other New York City smokers growing tobacco at home, they appear to be keeping it to themselves. Ms. Silk does not know anyone else in the city who does so. But they are out there: Mr. Johnson estimated that last year, he had more than 1,000 tobacco-seed customers in the New York City region.

Ms. Silk sat in the house she shared with Bingo, her dog, and Albert, her parrot, and pulled a cigarette from a Parliament Lights pack. “Don’t let this fool you,” she said. “I put my roll-your-owns in here. I just saved all my old Parliament boxes.”

Ms. Silk was smoking loose tobacco she had bought. She is in a lull in production: she finished smoking her first crop and has been too busy to prepare her second. The delay works to her advantage. “If I want a better flavor,” she said, “the longer I can leave it, the better it is.”

Growing tobacco saves Ms. Silk money, but costs her time.

She has to plant the virtually microscopic seeds in trays indoors and then, weeks later, transplant them to buckets outside. She waters the plants daily until they grow to be about five feet tall, with big leaves that droop from the stem. “Like elephant ears,” Ms. Silk said of the leaves. “That’s why, when people joke around and say, ‘They’re going to think you’re growing pot,’ I’m like: ‘I’m sorry. There’s no one mistaking this for pot.’ ”

Then there is the processing: washing leaves in her kitchen sink, drying them over the downstairs tub, hanging them in the basement, storing some in boxes she keeps in a walk-in closet, removing the middle vein from each leaf, forming bricks out of about 25 leaves and feeding those bricks into a hand-crank machine for shredding. After planting her 2009 crop, Ms. Silk had to wait several months before smoking her first cigarette from it. The authorities, she added, should not be concerned that she might be illegally selling her cigarettes.

“I make meatballs,” Ms. Silk said, by way of explanation. “My recipe is a four-hour ordeal. My biggest loved ones do not get any. When I have to put a lot of work into something, I don’t share.”

The 100 plants from her second crop are not much to look at now: mostly bare stems standing upright in the cold. Still, her Brooklyn tobacco is a source of pride, as both a green-thumb accomplishment and a political statement. She has even named her garden in honor, or dishonor, of someone important in her life: not her boyfriend, her dog or her parrot, but her mayor.

L: Doug, a couple weeks ago we talked about mass riots spreading beyond the Middle East, and you were right. Yemen, Bahrain, and Libya – hundreds reported dead in Tripoli. But I see on Google News that some very brave individuals have organized protests in Moscow and Beijing. And now we have tens of thousands protesting in Madison, Wisconsin, citing the successful uprising in Egypt. There are counter-protesters in Wisconsin, fears of violence… talk of the governor calling up the National Guard. Is the spirit of revolution in the air?

Doug: On a deep level, there is a common thread running through these events. But, in bankrupt Wisconsin, the pro-union forces trying to hold on to artificially high wages and benefits have nothing in common with the hungry, oppressed, miserable people who took to the streets of Egypt. It’s fashionable for all sorts of people with a grievance to call those Egyptians “freedom fighters” and identify themselves with them. I’m a freedom-fighter, you’re a rebel, he’s a terrorist. The semantics are used to muddy the distinctions, not to clarify.

To a fair degree the Egyptians really are freedom fighters – they actually did oust a tyrant – but they are just going to replace the old boss with a new boss. It’s not been a radical revolution – at least not so far. The odds are that the new boss will be every bit as bad as, or worse, than the old boss, regardless of whatever window dressings of reform he uses to gain international acceptance for his regime.

Back in Wisconsin, it’s completely disingenuous – actually ridiculous and shameful – for unionized state employees to label themselves freedom fighters. These are the people who most directly slop at the trough at the public’s expense. They’re minions of the ruling class. They’re not trying to overthrow an unjust situation, they’re rioting to maintain it.

L: So, what’s the deeper, connecting thread?

Doug: Economic hardship. It seems to me that the driving factor behind these protests spreading in the Arab world – and what pushed them from inevitable to imminent – was rising commodity prices, especially food prices. Food prices are also rising rapidly in the U.S. Many fruits and vegetables have doubled, and bread is up 50% over the last year. Cotton has tripled over the last two years. That’s going to make clothing more expensive. The difference is that most Americans don’t live hand to mouth, not the way most Arabs do. But nonetheless they don’t like to see their standard of living drop, and they’ll strike out as well. As we just discussed in January, it would be most prudent to prepare for chaotic times ahead.

L: Oppressed Middle Easterners take to the streets out of hunger. Wisconsin union members take to the streets because their entitlements are threatened. Both relate to the rising costs of real things resulting from the global currency crisis, which is part of the larger train-wreck of the old economic world order.

Doug: Yes, and with modern communications, widespread public sentiment can be mobilized with speed never seen before. But you know, it’s a bit similar to what happened back in the ’60s – although for different reasons. We had simultaneous riots in Europe – mostly in France, but also in Germany and Italy. In Paris, they were tearing up the cobblestone streets to throw rocks at the cops. You had the race riots in Detroit, LA, and Washington, DC, among other U.S. cities, and later, anti-war protests. At exactly the same time, you had the Red Guard and a huge conflagration in China. Three major centers of world civilization erupted in civil unrest at once. But those riots were strictly political. Today’s riots are economic, and that’s much more serious. Political riots are generally for sport. Economic riots are the real thing.

I’ve no doubt that with the economic, social, and political forces at work in the world today, we’ll see more unrest, lots more. But it’s going to be much more violent, and much more dangerous than it was in the ’60s, because the world is much less stable.

L: And more countries have nuclear weapons. If more U.S. puppets fall in the Middle East, that’s going to be really bad for Israel, which is surrounded and outnumbered by foes who have no interest whatsoever in reaching a peaceful accommodation. If pressed hard enough, Israel could go nuclear, the threat of which has not stopped individuals from shooting rockets into their midst. I know you don’t like making predictions, but does your guru-sense tell you that’s likely to actually happen soon?

Doug: Nobody knows, of course, but the odds favor new leaders in most of the Arab countries – and most of the Muslim world. Israel is opposed to any change, because they have an accommodation with the old governments. The same is true with the U.S. Israel and the U.S. are like a nasty dog and his bad-tempered master – although I’m not sure which is which. Sometimes the master kicks the dog, sometimes the dog bites the master, but they still work together.

Anyway, now both the U.S. and Israel are going to have to cut new deals with new governments. I suspect the new governments will be less inclined to be U.S. stooges, and more likely to be actively anti-Israel.

Meanwhile, bankrupt state governments in the U.S. could precipitate chaos there, before the balloon goes up elsewhere. We are in uncharted waters, in which anything can happen – and probably will. The key is that most people in the world live on less than $3 a day, most of it goes to food, and food prices are exploding upwards. As is fuel.

L: I remember the terrible events in New Orleans when civil order broke down just a couple years ago. Most Americans seem to be ignoring that embarrassing event, and have long forgotten the Watts riots and Kent State. How do you get such people to consider the facts without sounding like Chicken Little?

Doug: Good question. When the going gets rough, it often turns out that civilization is really just a pretty veneer that lies on top of a fetid cesspool. The fact of the matter is that many – actually most – people suffer from serious psychological aberrations that rise to the surface if you push the right hot buttons. Losing what they have, and going hungry – especially when they see thieves like most politicians and their pals making billions – won’t sit well with the masses. It’s going to push a lot of hot buttons.

I don’t like thinking about rioting and martial law and all of that unpleasantness either; people get hurt, property is destroyed, and so forth. But at this point, a good dose of that looks almost inevitable. What we’ve seen in Tunisia, Egypt, now Bahrain, and Libya – it’s not just a flash in the pan. It’s the start of something big.

L: It’s a pity to see so much human energy being unleashed, creating powerful forces for change, at a time when it’s unlikely that that power will be used for good. So few people have any grasp of basic economics – they have no idea where prosperity comes from. So few people understand that human rights are individual rights and that entitlements are not rights… These people are going to ask for Big Brother to take them in hand, and Big Brother is going to give them what they ask for, good and hard.

Doug: You’re quite correct. The logical next step, as we mentioned before, is a new Robespierre – or a whole slew of them. But you know I always try to look at the bright side, and the good news is that a lot of despotic states are going to be overthrown. Others that are not overthrown will be discredited – also very good. This comes at a time when many of these states are on the ragged edge of collapse anyway – their days are numbered, even without this force precipitating their collapse.

Perhaps technology has advanced to the level that people will begin to see they can conduct their lives without the dead hand of the state trying to tell them what to do, and taking most of what they produce for the privilege.

L: Perhaps. The time may not be far off when the very idea of the nation-state itself will be discredited, and human society will evolve to a – hopefully – better form of organization.

Doug: I’d love to think so. I think that as technology continues to advance and liberate the individual, the disappearance of the state is inevitable, even if it’s not imminent. But whether things get better after the crash or not, I’m increasingly convinced that what has long been inevitable for the whole world is now becoming imminent. We are in the early stages of a major upheaval. In other words, distortions in the way the world works have been built up to a level where the old order could easily collapse. I’m quite serious when I refer to the coming Greater Depression.

L: Just as we all knew the Soviet Union had to collapse from its internal problems – tyranny and economic stupidity – but weren’t sure when. Now, decades of economic mismanagement and bad decision-making in the global arena must eventually be liquidated. But how do you know the bill is coming due?

Doug: Well, timing is always the problem. If you wait long enough, absolutely everything that is possible will happen. I suppose that’s why we have time itself – to keep everything from happening at once [chuckles]. But we have to think about what’s likely in the course of a single lifetime, so we can benefit from foresight – or be punished for guessing wrongly.

Consider that several other U.S. states are looking at “union-busting” legislation such as Wisconsin’s. Unions can no longer pretend to be vehicles to protect the workers; they are really nothing but cartels that reward their members at the expense of everybody else. And, unlike the federal government, the states can’t just print money. They have to tax people directly to pay for things. Now they have two choices: raise taxes or default on past promises.

Raising taxes is very hard to do during a depression. People who feel their standard of living is slipping just won’t stand for it. Taxes were a major cause of the French Revolution and the American Revolution.

The riots in the ’60s weren’t about this type of thing – entitlements and taxes – but remember, in the ’60s, few states had sales taxes, and where there was one, it was usually only one percent, or two, max. Now, sales taxes regularly run six, seven, eight, even ten percent. In addition, real estate taxes have gone up tremendously, as have state income taxes, of which there were also fewer back then. So these governments are already straining their ability to tax, and they know that if they raise taxes again, it will destroy much of what’s left of their economies.

L: But they can’t really default either – that would get the politicians thrown out of office just as quickly.

Doug: Default would hurt bondholders – generally older people who are very active voters. Also, pension funds, insurance companies, and banks would see a large chunk of their assets wiped out, which would be another body blow to struggling state economies. Not being able to print money, they won’t be able to keep paying their debts, so they’ll be forced to lay off more and more government employees. State and local governments are truly between a rock and a hard place, just like the U.S. government. But the U.S. has the option of destroying the currency to put off the hour of reckoning, and that’s what they’ll do.

L: Well, if the governments have to fire a bunch of employees, that’s a good thing. But it will add to the unemployment burden, unless they scrap unemployment benefits too, which would also get the politicians tossed out of office.

Doug: Well, most government employees just push paper, and stop things from happening. It would be cheaper and better to pay them not to work, so they won’t do actual damage – or give them unemployment compensation. Unfortunately, though, they’ll just fire a few employees, or cut their wages and benefits a bit. What they need to do is totally abolish whole departments – each state has hundreds of them, making the lives of businessmen miserable and expensive. They won’t do that, so the bureaucracy will just grow back if there is any recovery. Rather, the reduced number of employees will slow down approvals even more, slowing business even more. And that will further open the door to corruption.

Actually, it would be therapeutic to see some of them end up like Mussolini. It’s certainly a good thing to see action toward recovering the money Mubarak stole. The same should be true in the U.S. Everybody in high office emerges very wealthy from a small salary – it’s all stolen money.

But at this point, there is just no way out. It’s like jumping off the top of a 100-story building – it’s an exhilarating ride until you get to the bottom. That’s exactly where, not just the U.S., but the whole global economy is.

L: I guess so… You could spread your arms and try to slow the fall, or if you were an experienced sky-diver, you could try to angle your descent toward one side or the other, but it’s not going to change what happens when you hit the street.

Doug: That’s exactly right. In the real world, actions have consequences. Economic causes have effects, and the piper can only be put off from payment for so long. I don’t think he can be put off any longer.

L: When, exactly, do you think the bill – and its ever-accumulating interest – will come due?

Doug: I’m not going to put a date on it, but it’s starting. The next ten years are going to be the most interesting decade in centuries. The events that are now under way – economic, financial, social, technological, political, and military – have the promise of being the biggest thing in a very, very long time.

L: Okay, but, with all due respect, you were full of doom and gloom back in 1980 – said we were going to tip over the edge, but we didn’t.

Doug: I was, and I did say that – and we could indeed have gone over the edge back then. It was a very close thing. Fortunately – or unfortunately, if you consider the much, much larger bill now coming due – they papered it over. And things actually got better, due to two things: one, many individuals produced more than they consumed, and saved the difference; and, two, we got many improvements in technology. But financial and economic affairs are much worse now than they were then.

L: You don’t believe it’s possible to paper it over this time? Doesn’t it make you uncomfortable to say, “It really is different this time!” – at least a bit?

Doug: Sure it does. Famous last words. But, in fact, it really is different this time, as anyone who searches the news for phrases such as “unprecedented,” “record deficit,” “record bank failures,” etc., can see. It’s a judgment call, obviously. But we have to make judgments if we’re going to succeed, or even survive. Sometimes you have to call for a change in a major trend – which is risky. But not nearly as risky as getting trampled by the mob after it actually changes. I’m not afraid to leave the mainstream. In fact, I far prefer it, whether I’m right or wrong.

L: How can you be so sure there’s no possible way to paper this over again? Mugabe trashed his currency and is still in power. Life goes on in Zimbabwe. Couldn’t multi-trillion-dollar deficits become the new normal in the U.S.?

Doug: No, that’s not possible. It would destroy the currency. It’s bad enough when you do that in a nothing/nowhere country like Zimbabwe, where subsistence farmers can keep on scratching a living out of the dirt with sticks and stones, if they have to. But it wipes out most of the economy above the subsistence level, as just about everyone has their savings in the destroyed currency. If you do that to the Canadian dollar, say, it would be a disaster – but mainly for people who live in Canada. And plenty of Canadians have assets in other countries. But if you do it to the U.S. dollar, it wouldn’t just be a disaster in the U.S. The U.S. dollar is the world reserve currency. Few Americans have assets outside of the U.S. Foreigners hold, maybe, eight trillion U.S. dollars. All the central banks of the world have mostly dollars. People all over the world have dollars in their pockets and bank accounts. When Bernanke destroys the dollar it will be a worldwide catastrophe. And that will happen all the faster if the feds bail out the states – which is a possibility with someone like Obama in charge.

Let me re-emphasize this. Almost everyone with net worth around the world tries to keep much of it in dollars. There are trillions of dollars outside the U.S. – far more than inside, and the people holding them are going to be impoverished. They won’t be able to invest or to spend. A collapse of the dollar would lower the standard of living of a lot of people around the world, basically overnight.

This is really, really serious, and there’s no way out. We are going to go through the meat grinder.

If we were to somehow stumble through this one – I would be fascinated to see how – and manage to move ahead in some semblance of the way things were pre-2008, I very much doubt it would last long. And I’m very sure it will just make the ultimate reckoning day that much more catastrophic.

I hate to say it, because I know the human cost will be enormous, but I think the odds greatly favor this being “it.” I only hope to not be very adversely affected by it – and to have the right to say “I told you so”… although it will be unwise to draw that to anyone’s attention after it happens. [Chuckles]

L: Hm. Well, even if there was some way to gain a reprieve for a few more years, it’s still going to be ugly. The 70,000 people protesting in Wisconsin show that the so-called jobless recovery is a lie. Improving the bottom line by laying people off is not the same as increasing the top line, and increased government spending is not real GDP growth. Even if we manage to struggle on this way, the minimum payments now due the piper are going to keep things dicey. That means that the risk of social/political collapse remains, even if we avoid economic collapse.

Doug: Nothing we haven’t said before: we’re headed out of the eye of the storm, so you better rig for stormy weather – the worst you’ve ever seen.

L: Specifically…

Doug: Buy gold – lots of gold, even though it’s no longer cheap. To capitalize on the likely next bubble, buy gold stocks. Given the trouble in the Middle East, the right energy stocks are also good to invest in. Short anything that won’t do well in economic hard times, including the whole financial sector – and the retail, consumer, and construction sectors. Use those investments to build your cash position so you’re ready to take advantage of the spectacular investment opportunities all of this turmoil is going to cause.

And do not – do not – forget to diversify yourself out of your country of residence. If you have the means, and have not done so yet, buy a “vacation” home. Make it in some nice remote place where you’d enjoy spending time in any event, but where the people live close to the earth and don’t depend on the modern global economy. Also, make it in a place where hungry masses from unsustainable cities are unlikely to show up on your doorstep.

L: And if the sky is not falling?

Doug: Then you still make a bundle on the volatility ahead and end up with a nice vacation home you can sell if you decide you no longer need it for insurance.

But remember, nothing lasts forever. Few governments last as long as that of the U.S. has – and it’s showing clear signs of terminal decay. Don’t kid yourself, thinking, “It could never happen here.” Europeans have an advantage over Americans; they remember fighting each other much more recently, and know full well it certainly can happen there.

L: Okay, Tatich. I guess I’ll add the gun shop to my stops when I head down to my local coin shop to buy gold – time to load up on ammo again.

Doug: Sure, why not? You can always sell it later if you don’t use it. Cigarettes too, even though I know you don’t smoke. And alcohol, even though I know you don’t drink.

L: I’ll feel like a Y2K fanatic, but I guess there’s room in the attic.

Doug: Sounds trite, but it’s better safe than sorry, and it won’t hurt to prepare for the worst and hope for the best.

L: Sometimes old wisdom is the truest wisdom.

Doug: Indeed. We’ll talk more next week. This business with the labor unions in Wisconsin is interesting – we should talk about labor unions.

The world is exploding with protests, riots and in some cases revolutions. Behind this disruption of the status quo is the reaction against government attempts to force people against the natural order. In Egypt, Tunisia, Libya, and the like, it is pure revolt against totalitarian control. In Greece, Ireland and Wisconsin it is protests against the fact that governments can’t do the impossible, i.e. pay out more plunder than they take in (in one form or another). In Greece, Ireland and Wisconsin, the protesters clearly want the impossible. They want the plunder that isn’t there.

But at the core, the fundamental problem with all these upheavals is there is no indication that the people in any of these situations understand what makes for a growing prosperous society. In Greece, Ireland and Wisconsin, the protesters are clearly self-centered, who have no clue that they would live in a much better society if the governments simply ended their positions and stopped taxing the people. This would result in the people hiring the government employees in the private sector, where the incentives would result in a growing society.

In the revolutions of Egypt, Tunisia and Libya it is not clear what will replace the totalitarians. There is no indication that the masses understand the destructive nature of government control.

From Wisconsin to Libya, the teachings of Hayek, Mises and Rothbard are still not generally understood. Until they are, protests, riots and revolutions may simply just set the stage for future protests, riots and revolutions, as one government plan is replaced by some other government plan that won’t work in the long run. Nothing will really change until the people truly understand the importance of the rule of law, private property and free markets. Until Hayek, Mises and Rothbard are on the lips of revolutionaries the way Marx and Guevera and are now, the revolutions shall continue.